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U.S. dollar finds life in Venezuela
Miami Herald ^ | August 13, 2003 | FRANCES ROBLES frobles@herald.com

Posted on 08/13/2003 2:36:54 AM PDT by Cincinatus' Wife

CARACAS - Venezuela's squeeze on U.S. dollars has created a thriving black market for the American greenback, where businesses and individuals pay almost twice the official exchange rate.

The Venezuelan government shut off the flow of U.S dollars six months ago, instituting strict exchange controls to keep the local currency from plummeting amid an economic and political crisis that has seen the nation's gross domestic product shrink by about 10 percent in the past year.

But instead of creating an economy based on 1,600 bolívars for the dollar -- the official rate available to the few and privileged through government-approved channels -- Venezuelans have gone under the table.

The cost on the street: about 2,500 and sometimes up to 3,000 bolívars to buy one U.S. dollar.

''If it wasn't for this parallel market, people would be out of business,'' said Carlos, a black-market dollar dealer who asked that his surname not be published. ``Supposedly, you can get dollars legally. I wouldn't know how.''

Venezuela has been mired in political and economic crisis for 16 months. Since taking office in 1999, President Hugo Chávez has consolidated his control over institutions like the courts and congress, and now most citizens want him out.

In December, an alliance of business, labor, oil and media interests went on strike to force the leftist firebrand from office.

But while Chávez did not budge, the local currency did. It sank from about 750 bolívars to the dollar in early 2002 to 1,717 in early 2003.

Chávez put the brakes on the slide by stopping the sale of the U.S. dollars and creating a government agency to dole out the dollars to businesses that qualify, many of them foreign.

To get dollars legally, they must submit exhaustive paperwork showing, among other things, that they are up to date on their taxes.

''If it takes seven months to get dollars legally but your bills are due in 30 days, you will go to the black market,'' economist Abelardo Daza said. ``Big companies have a better capacity to deal with it. Small companies just can't.''

Because the business sector helped organize the strike against him, Chávez was quick to note that those who joined the work stoppage wouldn't get a single buck. But bills are due and supplies must be purchased, so business owners are turning to the street, where they pay about 75 percent more.

The government initially said anyone caught changing money illegally would be fined 10 times the amount, but the increasing demand for dollars made the government back off and accept the black market trade.

''It's a real nasty situation,'' said Antonio Herrera, vice president of the Venezuelan American Chamber of Commerce here. ``It's thoroughly a mess.''

Herrera said that the Venezuelan government has so far distributed some $1 billion under exchange controls but that it takes $1.2 billion a month to bankroll the nation's import-dependent economy. The central bank, however, acknowledges there are some $19 billion in reserves, up from $13.9 billion in late January.

The upshot, Herrera said, is that businesses can't afford to pay so much more for goods, so they cut back on production and staff. ''The people who get socked are the ones who are laid off,'' he said.

Consumer prices here have increased about 15 percent but do not reflect retailers' increased costs, analyst José Antonio Gil said. Prices can only go so high in a nation where real salaries dropped 24 percent last year.

The finance ministry has said it is considering levying a tax on foreign-currency trading, in exchange for a relaxation of the controls, but will not lift the controls completely.

''Every day, the flow of dollars is more efficient and at a higher amount,'' Latin American Bank Association President Ignacio Salvatierra was quoted as saying in a government statement last week.

Carlos, the money changer, said that although he has heard of black-market deals in the millions, most of his clients are not business owners in a crunch but rather ordinary Venezuelans desperate to protect their savings.

His other clients are people who have been saving dollars all along or who have had a recent windfall and are happy to sell them at a nice profit.

''People don't really need the dollars, as much as they are afraid of having all their savings in bolívars,'' he said. ``Either way, money is moving -- big time.''


TOPICS: Business/Economy; Crime/Corruption; Culture/Society; Foreign Affairs; Front Page News; Government; News/Current Events; Politics/Elections
KEYWORDS: communism; dollar; hugochavez; latinamerica; latinamericalist; venezuela
Hugo Chavez - Venezuela
1 posted on 08/13/2003 2:36:54 AM PDT by Cincinatus' Wife
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To: Cincinatus' Wife
The Venezuelan government shut off the flow of U.S dollars six months ago, instituting strict exchange controls to keep the local currency from plummeting amid an economic and political crisis that has seen the nation's gross domestic product shrink by about 10 percent in the past year.
An economy is controlled by communication. And whereas the traditional meaning of money is something real, pesos or dollars (Euros, whatever) are strictly units of information. Those units of information traditionally enable people to cooperate without knowing each other, and without bartering apples for automobiles.

I emphasize "tradition," but do not be deceived by that; the fact that you can understand what I have written is due simply to your (and my own) knowledge of the traditional meanings of words.

Price controls are mere censorship of of the language of cooperation, invidious and inimicable to free and voluntary cooperation.


2 posted on 08/13/2003 4:10:10 AM PDT by conservatism_IS_compassion (The everyday blessings of God are great--they just don't make "good copy.")
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To: *Latin_America_List
http://www.freerepublic.com/perl/bump-list
3 posted on 08/13/2003 6:24:15 AM PDT by Libertarianize the GOP (Ideas have consequences)
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